OFAC Imposes First-Ever Sanctions Against Virtual Currency Mixer – Export Controls and Trade and Investment Sanctions

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On May 6, 2022, the United States Department of Treasury’s Office of Foreign Assets Control (“OFAC”) designated crypto mixer Blender.io as a Specially Designated National (“SDN”), marking the first time a virtual currency mixer has been sanctioned. . This decision is the latest in a series of designations of sanctions and enforcement actions in the virtual currency industry based on a determination of involvement in malicious cyberattacks and laundering of virtual currency proceeds. stolen during illicit ransomware attacks.

The May 6 designation follows several sanction actions in the past few weeks alone in the virtual currency industry, including:

  • April 20, 2022, designation of Russian crypto-mining firm BitRiver and 10 of its subsidiaries for facilitating sanctions evasion by Russia and Russian entities

  • On April 14 and 22, 2022, designations of several Ethereum addresses as being affiliated with the North Korean group Lazarus and involved in the hack of the $625 million Ronin Bridge

  • On April 5, 2022, designations of the world’s largest darknet market, Hydra Market; Garantex virtual currency exchange; and over 100 virtual currency addresses based on their role in transferring ransomware proceeds and other actions deemed a threat to U.S. national security and foreign policy interests

These actions build on last year’s designations of the first sanctioned virtual currency exchanges – Suex (September 2021) and Chatex (November 2021) – based on their role in facilitating transactions involving the proceeds of ransomware attacks. .

Virtual currency mixers such as Blender.io receive a variety of transactions and mix them before passing them on to their final destinations. Although proponents of mixers tout their usefulness in increasing privacy in virtual currency transactions, law enforcement officials have highlighted concerns over the exploitation of mixers to help circumvent sanctions and launder the product of malicious cyberattacks and other criminal activities by obscuring the original source of the virtual. currency.

In announcing the designation of Blender.io, the Treasury Department said that Blender.io helped North Korean state-sponsored cyber-hacking organization Lazarus Group, itself an SDN, process 20.5 million dollars from the proceeds of the biggest virtual currency theft to date, the Axie Infinity’s Ronin bridge online game hack. OFAC’s investigation into Blender.io also found it facilitated transactions for Russia-linked malicious ransomware groups, such as Trickbot, Conti, Ryuk, Sodinokibi, and Gandcrab. The designation means that all proprietary interests of Blender.io in the United States or in the possession or control of U.S. Persons are blocked and that no U.S. Person may engage in any dealings or dealings directly or indirectly involving Blender.io.

In taking the actions outlined above, OFAC officials acknowledged that the majority of virtual currency transactions are legitimate, while noting the increased use of sanctions against platforms and tools that facilitate the circumvention of sanctions or transactions involving the proceeds of malicious cyberattacks and other criminal conduct. We expect a continued increase in the use of sanctions designations against these actors, as well as an increase in enforcement actions against companies that engage in transactions directly or indirectly involving these sanctioned entities. Additionally, these efforts are part of a coordinated multi-agency policy and enforcement initiative that includes OFAC, FinCEN, the Department of Justice and other agencies, in coordination with their international counterparts. 1 Businesses involved in virtual currency transactions should continue to monitor industry-related regulatory developments at national and international levels and ensure that they have appropriate risk-based measures in place to identify and detect transactions. and parties that could result in potential penalties and money laundering risks.2

Footnotes

1. See, for example, our previous Alert, OFAC issues updated ransomware advisory emphasizing reporting and cooperation with US law enforcement (here).

2. Office of Foreign Assets Control, Sanctions Compliance Tips for the Virtual Currency Industry (October 15, 2021)(here).

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This article by Mayer Brown provides information and commentary on interesting legal issues and developments. The foregoing is not a complete treatment of the subject matter covered and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action regarding the matters discussed here.

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